The most significant risk for Macau’s six operators when it comes to concession renewals is likely to be higher taxes, or other “economic rent,” Bernstein Research said in a note.
The firm said the risk is unlikely to be an increase in gaming tax, as that is already the highest in the region, but potentially the introduction of a profit, or dividend tax, it said.
The government may also require more non-gaming investment in Macau, or Hengqin in return for renewals, which would have a lower return on investment, but would help the industry through the provision of more hotel capacity.
Bernstein said its note was addressing the top five concerns brought up by investors during a four-week roadshow to the U.S., Canada and Europe.
It said the U.S./China trade war and the potential impact on the concession renewals was viewed as a key concern by investors, who remain negative towards stock in the Macau operators.
They were also anxious to hear about the current downturn and how this was different from the slump from 2014 to 2016. The impact of the smoking ban on VIP rooms, which takes effect next year and how infrastructure development will drive gaming demand also emerged as discussion points.
In terms of concession renewals, Bernstein says it may be extremely difficult for the government to take away the licenses. It points out the license applies only to the casino floor and equipment, while the remainder of the property in theory would remain under the management of the operator. Therefore, it would be “virtually impossible to operate a casino without the cooperation of the real estate owner.”
Leases on the land do not expire until 2026-2038.
The firm also says that non-renewal would be highly detrimental to foreign investor sentiment and therefore counter productive to Beijing’s efforts to open the country to further foreign investment.
There has also been considerable speculation the Macau government may allow a seventh concessionaire to open up the field to more local, or Chinese participation.
Bernstein counters this is unlikely as China does not want to see any of its companies involved in gambling activities.